Inflation hit 2.9 per cent in August, meaning wages have suffered a real terms decline of 0.4 per cent.

Stuart McIntyre from the University of Strathclyde’s Fraser of Allander Institute said: “Today’s labour market statistics show that on headline indicators, the Scottish labour market continues to look in good health.”

He added: “Meanwhile rates of economic inactivity, which had been a cause for concern through much of the past 18 months, are now back at the same rate as the UK as a whole.

“While these headline indicators remain healthy, the outlook for people in work remains mixed.

“Earnings growth has been weak for some time, and with inflation at 2.9 per cent, this means that while headline indicators of the labour market may look strong, family budgets will be feeling the squeeze.”

“With the most recent GDP figures showing the Scottish economy grew nearly four times that of the UK in the first quarter of this year, today’s labour market figures are further proof that the fundamentals of Scotland’s economy remain strong, despite the challenges posed by Brexit.”

But Smith also said further industrial strategy was needed to help workers in the private sector.

“Both governments must now focus not just on removing the one per cent pay cap for public sector workers but on improving living standards with a real terms pay rise,” he said.

“The private sector too is suffering and more needs to be done to improve the quality of work. It is simply not good enough to highlight low unemployment if the jobs on offer are low paid and insecure.”

The Federation of Small Businesses pointed out that around one in eight of those employed are self-employed.